Correlation Between LGI Homes and Goodyear Tire
Can any of the company-specific risk be diversified away by investing in both LGI Homes and Goodyear Tire at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining LGI Homes and Goodyear Tire into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LGI Homes and The Goodyear Tire, you can compare the effects of market volatilities on LGI Homes and Goodyear Tire and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in LGI Homes with a short position of Goodyear Tire. Check out your portfolio center. Please also check ongoing floating volatility patterns of LGI Homes and Goodyear Tire.
Diversification Opportunities for LGI Homes and Goodyear Tire
0.13 | Correlation Coefficient |
Average diversification
The 3 months correlation between LGI and Goodyear is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and The Goodyear Tire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goodyear Tire and LGI Homes is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on LGI Homes are associated (or correlated) with Goodyear Tire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goodyear Tire has no effect on the direction of LGI Homes i.e., LGI Homes and Goodyear Tire go up and down completely randomly.
Pair Corralation between LGI Homes and Goodyear Tire
Assuming the 90 days trading horizon LGI Homes is expected to generate 1.02 times more return on investment than Goodyear Tire. However, LGI Homes is 1.02 times more volatile than The Goodyear Tire. It trades about 0.02 of its potential returns per unit of risk. The Goodyear Tire is currently generating about 0.0 per unit of risk. If you would invest 10,100 in LGI Homes on September 1, 2024 and sell it today you would earn a total of 300.00 from holding LGI Homes or generate 2.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.48% |
| Values | Daily Returns |
LGI Homes vs. The Goodyear Tire
Performance |
| Timeline |
| LGI Homes |
| Goodyear Tire |
LGI Homes and Goodyear Tire Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LGI Homes and Goodyear Tire
The main advantage of trading using opposite LGI Homes and Goodyear Tire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes position performs unexpectedly, Goodyear Tire can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Goodyear Tire will offset losses from the drop in Goodyear Tire's long position.The idea behind LGI Homes and The Goodyear Tire pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Goodyear Tire vs. SENECA FOODS A | Goodyear Tire vs. United Natural Foods | Goodyear Tire vs. National Storage Affiliates | Goodyear Tire vs. UNITED UTILITIES GR |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
Other Complementary Tools
| Idea Analyzer Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas | |
| Portfolio File Import Quickly import all of your third-party portfolios from your local drive in csv format | |
| Watchlist Optimization Optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm | |
| Idea Optimizer Use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio | |
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated |